Lawsuits Over IPOs to Proceed

NEW YORK -- A federal judge ruled Wednesday that legal claims brought by thousands of investors alleging fraud in initial stock offerings during the technology stock bubble can proceed.

U.S. District Judge Shira A. Scheindlin said the plaintiffs presented "a coherent scheme by underwriters, issuers and their officers to defraud the investing public" by concealing, through misinformation, various tie-in agreements, undisclosed compensation and analyst conflicts to artificially boost the value of the new shares.

If the allegations are true, "this scheme offends the very purpose of the securities laws," Scheindlin said. "Where insiders conspire to frustrate the efficient function of securities markets by exploiting their position of privilege, they have perpetrated a double fraud: They have manipulated the market, and they have covered up that manipulation with lies and omissions."

In her 238-page ruling, Scheindlin said she had considered the claims and counterclaims made in more than 1,000 lawsuits filed in Manhattan from Jan. 11, 2001 through Dec. 6, 2001.

Investors allege the value of their holdings plummeted as a result of the alleged fraud in connection with 309 initial public offerings of stock, including those of shares in theglobe.com, Global Crossing and MP3.com.

The decision came at the stage of litigation in which defendants attempt to have lawsuits dismissed on the grounds that there are insufficient allegations to put before a jury.

Scheindlin said some of the defendants could be dropped from the case because there was not enough evidence against them, but that most would stand.

The lawsuits named as defendants 55 underwriters, 309 issuers of stock in high technology and Internet-related stocks and thousands of individuals. They target a high percentage of the more than 460 tech and Internet-related companies that raised capital by selling ownership of their company to the public between January 1998 and December 2000.

Gandolfo V. DiBlasi, a lawyer for the underwriters, which include J.P. Morgan, Salomon Smith Barney, Credit Suisse First Boston, Robertson Stephens and Morgan Stanley, said he hadn't seen a copy of the ruling and couldn't comment. Jack Auspitz, a lawyer for the issuers, said the same thing. Lawyers for the investors, meanwhile, did not return requests for comment.

The Securities and Exchange Commission and the National Association of Securities Dealers have been investigating Wall Street's dealings in IPOs for more than a year.

Last month, FleetBoston Financial Corp. agreed to pay $28 million to settle allegations that its Robertson Stephens investment bank got inflated commissions in exchange for improperly distributing hot new stocks to customers.

In December 2001, Credit Suisse First Boston agreed to pay $100 million to resolve regulators' allegations of abuses in its distribution of IPOs.